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Kultur Dokumente
1&2.
Definition of Absolute advantage: the comparison among producers of a good according
to their productivity.
A person can have an absolute advantage in producing all goods. However, a person
cannot have a comparative advantage in producing all goods. Accordingly, comparative
advantage is more important in explaining gains from trades.
3. With specialization (when everyone is producing at lower opportunity cost), the total amount
of goods and services produced (from the same amount of resources) will increase.
4. The principle of comparative advantage suggests that each good should be produced by the
person who has a lower opportunity cost in producing that good (that is, the person who can
produce the good at a lower opportunity cost should specialize in producing that good). With
specialization, the total amount of goods and services produced will be higher. Since everyone is
producing the goods at a lower opportunity cost, they are willing to trade them at lower prices.
This means that everyone will have more of the goods and services to consume.
5 through 9:
5. Country A; absolute,
6. Country A; absolute,
7. Country A; comparative,
8. Country B; comparative,
9. Country A; country B